Toxic Smog in Beijing Fueling Auto Sales for GM, VW

A BYD Co.'s K9 bus, front, and other electric buses travel on the road during a road show in Shenzhen, Guangdong on 4 November 2010. The bus is currently in use in Shenzhen, and the automaker says it plans to introduce the all-electric vehicle to more Chinese cities with government support. Source: Imaginechina

Jan. 24 (Bloomberg) -- Twice in one day last week,
Beijing’s air got so bad that taxi driver Jiao Quanyou almost
plowed into the vehicle in front of him.

“I didn’t see the car,” said Jiao, who has driven a cab
for 12 years. “I quit four hours early that day even though I
made a loss.”

In contrast to Jiao, foreign manufacturers in the world’s
biggest auto market are poised to profit from this month’s
record-breaking pollution. With toxic smog engulfing Beijing and
much of the rest of the country for weeks now, China is
considering tighter vehicle curbs and emissions standards that
match Europe’s.

That could benefit General Motors Co., Volkswagen AG, and
Hyundai Motor Co. in a market where sales are forecast to top 20
million units this year, according to industry researcher
Intelligence Automotive Asia. The new rules are likely to spur
many drivers to buy new cars, and unlike most domestic
automakers, overseas companies can produce vehicles that comply
with stricter global standards for emissions.

“All foreign car and truck makers are capable of meeting
very advanced emission standards and will have no problems,”
said Ashvin Chotai, managing director of Intelligence Automotive
Asia in London. “So it would put Chinese brands at a
disadvantage.”

Volkswagen is “well prepared” for stricter vehicle
standards and has reduced the fuel consumption and emissions of
its fleets by 20 percent since 2005, said Christoph Ludewig, a
spokesman for the company in Beijing.

Tailpipe Ads

BYD’s K9 bus is currently in use in the southern city of
Shenzhen, and the automaker says it plans to introduce the all-electric vehicle to more Chinese cities with government support.
Beiqi Foton, whose biggest shareholder is the government,
delivered 160 electric buses for Beijing last month.

BYD would also benefit from possible subsidies for
alternative-fuel passenger vehicles. The company is supplying
500 of its E6 electric cars to Shenzhen’s police, adding to 300
E6 taxis already on the city’s streets.

The company took out newspaper advertisements this month
claiming that tailpipe emissions would fall by 27 percent in
China if the country’s entire taxi and public bus fleets were
replaced with BYD’s electric vehicles.

BYD shares have risen 14 percent this year in Hong Kong
trading, outpacing the 4.2 percent gain in the benchmark Hang
Seng Index. Beiqi Foton surged on Jan. 14 after air pollution
hit record levels and is up 1.2 percent since then, versus a 0.4
percent loss for the Shanghai Composite Index.

Health Risk

Official measures of PM2.5, fine airborne particulates that
pose the largest health risk, on Jan. 12 rose to 40 times the
levels deemed safe by the World Health Organization, sparking
public calls for government action.

Four days later, the environmental protection ministry
released for public consultation a draft of stricter national
vehicle emission guidelines equivalent to the standard applied
to passenger and light vehicles in the European Union, though it
left open the date for implementation.

Beijing will take the lead and introduce the stricter
standards in the capital next month, the official Xinhua News
Agency reported, citing the city’s environmental protection
bureau. The sale and registration of diesel and gasoline
vehicles that don’t meet the new requirements will be banned
from Feb. 1 and March 1 respectively, according to the report.

Bike Lanes

To cope with congestion and pollution, the government
should develop more mixed-use districts where residents can live
and work to reduce the need for commutes, boost public
transportation, and encourage the use of bicycles, said Peter
Duncan, Shanghai-based chairman of urban planning firm Hassell.

“In China, the level of development is outpacing the level
of support infrastructure,” Duncan said. “The past week may be
the tipping point for the government to really concentrate on
particular areas of change.”

Shanghai and Beijing have rapidly expanded their Metro
systems in recent years, and nine other Chinese cities have
subway systems, with another 35 under construction or in
planning. Nonetheless, it’s not uncommon for new districts with
homes for tens of thousands of residents on the outskirts of
cities to be built with little access to public transport.

Public Transportation

The State Council, or cabinet, pledged earlier this month
to support the development of less polluting urban transport and
offer tax breaks and fuel subsidies for mass transit. The
council said it wants public transportation to account for 60
percent of motor vehicle use in towns and cities.

The government contributed to the worsening air quality by
encouraging auto sales to boost consumption in the global
financial crisis. Subsidies were extended for auto purchases and
trade-ins by rural residents as part of its 4 trillion yuan
stimulus package in 2009, the same year China surpassed the U.S.
as the largest vehicle market.

Now, the government is planning similar support to hasten
the shift to cleaner cars. Beijing will soon match a 60,000-yuan
central government subsidy for electric vehicles and exempt them
from license-plate quotas designed to cut the number of autos on
the road, according to Chen Guiru, deputy head of the local
government arm in charge of alternative -energy vehicle
development.

Electric Vehicles

Beijing’s acting mayor Wang Anshun said the city will take
180,000 old vehicles off the road and replace coal-burning
heaters in 44,000 homes in a bid to cut air pollutants. The
capital will also promote clean-energy vehicles among government
departments, Xinhua News Agency reported on Jan. 22.

China may see “increased emphasis on trying to speed up
the development of alternative-energy automobiles,” said Thomas
Callarman, director of the center for automotive research at
China Europe International Business School in Shanghai.

That would help the country get closer to a target of
cumulative sales of 500,000 electric vehicles by 2015 and 5
million by 2020. Sales totaled about 13,000 EVs from 2009 to
2011, according to Bloomberg New Energy Finance. A lack of
infrastructure and expensive models are behind the slow pace of
adoption, the researcher said.

Despite the new initiatives, auto production remains a
pillar of the Chinese economy, said Han Weiqi, an analyst at CSC
International Holdings in Shanghai. That means any new
initiatives are likely to take the form of limits on emissions
and pollution rather than restrictions that would hurt
automakers across the board.

“If there are measures to slow down car sales, the car
companies will be unhappy,” Han said. “And consumers won’t
like only taking public transport.”